A government business lending specialist is to investigate a loan made by Barclays that turned sour and allowed the bank to collect nearly £70,000 in taxpayer guarantees.
Capital for Enterprise, a fund management team owned by the business department, is looking into the £200,000 loan made in 2006 to a company controlled by Leeds businessman Jeffrey Morris, which was protected by the Small Firms Loan Guarantee scheme. The scheme aims to help entrepreneurs get finance by guaranteeing 75% of loans but Morris has alleged his loan was not eligible.
It could lead to a wider investigation into whether banks have misused the guarantee scheme as a safety net to protect them from risky lending rather than its intended purpose of getting finance to young entrepreneurs who could not provide the security for conventional borrowing.
A BIS spokesperson said: "The Department is aware of the allegations and CfEL is currently investigating. If Barclays is found to have misused the SFLG scheme then we will recover from Barclays any government payout against the loan. To ensure compliance against the respective scheme criteria, all lenders are subject to regular checks by CfEL, such as reviewing a sample of loans."
A dossier on the loan, made by Barclays to a company called Diamond Shape, part of Morris's business empire, has also been passed to the Treasury Select Committee by Alec Shelbrooke MP, who raised the issue in parliament last week.
A Barclays spokesman said: "Barclays denies Mr Morris's allegations in respect of Diamond Shape Limited. Questions in relation to the SFLG Scheme Loan to Diamond Shape Ltd have previously been raised in correspondence and answered as part of a high court case against Mr Morris which was heard back in January this year. Mr Morris lost this case and now owes Barclays more than £1.6m. It appears that Mr Morris' forthcoming bankruptcy hearing has prompted him to raise this issue again several months after it was raised by his legal representatives and previously answered by us. Barclays takes every customer complaint seriously and will always review and remediate where appropriate" The bankruptcy hearing was adjourned on 7 September.
At the time of the Barclays loan the SFLG scheme excluded businesses that had been trading more than five years, and Barclays has produced a customer information document signed by Morris which says Diamond Shape started trading in 2006 – suggesting the loan complied.
However, Diamond Shape's inaugural accounts for the period to June 2007 show that on the day it started trading it acquired part of a company called Countrylarge. Countrylarge was incorporated in February 1999. It acquired another Jeffrey Morris business in March 1999 and in its first year of trading to 5 March 2000 recorded a turnover of £2.2m.
The SFLG scheme also excluded "replacing existing loan and overdraft facilities", according to a note lodged in the House of Commons Library reviewing the schemes.
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